Aggressive Fed Minutes a Likely Tailwind For the USDOLLAR



The minutes from the Fed's December meeting indicate that members are concerned over surging inflation and that they also feel that the job market is near full employment. They also suggest that the central bank's balance sheet is due to be normalised, with the intentional reduction of Fed bond holdings. The runoff is likely after the Fed kicks off with its hiking cycle. Moreover, the Fed's acceleration of tapering its bond-buying implies that it will be fully concluded by the end of March. Consequently, the market expects that the first hike will also be announced in March. The minutes are aggressive and ultimately signal a reduction in liquidity i.e., dollar supply is most likely to decline. This, in turn, has the potential to push the greenback's value upwards.

Weekly Chart

Further to our previous article, we examine FXCM's USDOLLAR basket by applying a triple moving average system to gauge trend. We have also added a stochastic to measure current underlying momentum. The quick green moving average is above the intermediate orange moving average, and the intermediate orange moving average is above the slow red moving average. This is a bullish formation. The weekly stochastic is above 80 and holding (aqua arrow), which suggests the presence of bullish momentum.

Past Performance: Past Performance is not an indicator of future results.

Daily Chart

The USDOLLAR has pulled back since 15 December. Given the hawkish Fed minutes, it is prudent to consider a potential "dip in an uptrend" scenario. In this regard, we note that the daily EMAs are yet to form up bullishly. However, repricing may have started. The quick green moving average has crossed above the intermediate orange moving average (aqua ellipse). Noting the weekly momentum and assuming it is maintained, the odds are good that the daily EMAs line up positively. As this is not guaranteed, we continue to monitor.

Past Performance: Past Performance is not an indicator of future results.

Featured Image by Gerd Altmann from Pixabay

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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Past Performance: Past Performance is not an indicator of future results.

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